Growth boom masks Paraguay's hidden fiscal time bomb.

The tension between two parallel realities defines Paraguay's economic moment: while activity data continues to surprise on the upside —the Central Bank recorded GDP growth of 6.6% in 2025 under the so-called "war economy" and the economic activity index posted cumulative expansion of 5.6% through May, driven by agriculture and services— the fiscal framework is showing cracks that analysts can no longer ignore. It is precisely that gap between the dynamism of the real economy and the fragility of public accounts that makes the current moment one of the most revealing of the Peña era.

The BCP's growth figure is remarkable in regional terms. The IMF, which nudged its Paraguay projection up to 4.4% —while still flagging external risks— acknowledges that the country will grow at nearly twice the Latin American average. The Ministry of Economy and Finance highlights that agriculture and industry sustained activity through the first half of the year, and private-sector analysts are raising their estimates toward 5%, leaning on the strength of services and domestic consumption. Paraguay has also strung together twelve consecutive years as an upper-middle-income country under the World Bank's classification, a distinction the government frequently cites as evidence of structural consolidation.

But macroeconomic vigor is not solving the most pressing problem: revenue collection. The Dirección Nacional de Ingresos Tributarios —the agency born of the merger between the Undersecretariat of Taxation and the Customs Directorate, one of the first institutional reforms of the Peña administration— and representatives of the accounting sector agree that there is room to collect more without raising taxes. Its director, Óscar Orué, had pledged to lift the tax burden from 10% to 12% of GDP, generating roughly 400 million dollars in additional annual revenue. The path, however, is proving bumpier than expected. Three out of every four workers in the poorest decile earn less than the minimum wage, according to ABC Color, exposing an informal labor market that eludes the tax system and structurally caps the tax base.

The most immediate consequence shows up in the public accounts. The Caja Fiscal accumulated a deficit of 182 million dollars in the first five months of the year, while interest payments on public debt rose 12.9% year-on-year. The government is processing external credits worth more than 1.6 billion dollars and is exploring new bond placements in the local market, where the stock of Treasury Bonds already stands at approximately 1.2 billion dollars. An economist consulted by ABC Color warns that the debt is manageable but that the real constraint is low tax collection: if revenues fail to keep pace with spending, fiscal space narrows. The DNIT also plans to adjust its revenue estimates for the 2027 General Budget to account for exchange-rate effects, a sign that external variables are complicating fiscal planning. President Peña, according to ABC Color, sidestepped these issues in his latest management report, an omission that did not go unnoticed.

On the energy front, the news is troubling. Itaipú acknowledged that its transmission system to Brazil is operating at "zero values" due to ongoing works, an interruption that has direct implications for the revenues Paraguay receives from the binational hydroelectric plant. In parallel, ANDE reactivated tenders under a leasing arrangement for electrical equipment, though with an overall cost overrun of 61 million dollars compared with earlier versions of the process. A sector specialist warned that the country is entering a "crucial" stage in order to avoid an energy crisis, particularly if industrial demand keeps expanding. A case in point is the approval of a 6 MVA connection for a poultry processing plant, reflecting an industry that is growing but placing strain on an electrical infrastructure that remains inadequate.

On the trade front, Paraguay is pressing in the Mercosur-European Union negotiations for equal access quotas for its agricultural exports. Spain's Secretary of Commerce visited Asunción and highlighted the bilateral potential, in line with Spain's growing presence in the country: remittances from Spain, alongside those from Argentina and the United States, exceed 732 million dollars annually, feeding domestic consumption and the real estate market. The entry of CIRSA, the Spanish gaming and entertainment operator, was framed by the government as a vote of confidence in the country's legal certainty. Paraguay's economic openness stands 27 percentage points above the Latin American average, a comparative advantage that the new Minister of Economy, Óscar Lovera —who replaced Juan José Galeano at the helm of the portfolio— has pledged to deepen.

The coming week will bring several decisions worth watching closely: congressional approval of the Caja Fiscal reform, with amendments still under negotiation; the close of the creditor bid window at the MEF as part of a debt assignment operation; and the potential resolution on tariffs and operating conditions for the new concession of the Paraguay-Paraná Waterway, where the grain producers' chamber Cappro has demanded transparency. The debate over the minimum wage —with the business sector, represented by Asimcopar, warning that an adjustment lacking technical grounding would discourage investment— will also remain in play. What is ultimately at stake is whether Paraguay can sustain its remarkable growth pace without fiscal tensions and weak tax collection eventually eroding the stability the country has patiently built over two decades.

**CIRSA (not publicly traded)** — The Spanish gaming and entertainment group confirmed its arrival in Paraguay with an investment that authorities presented as a vote of confidence in the country's legal certainty; CIRSA operates in more than twenty international markets, and its expansion in Paraguay is part of a broader strategy of geographic diversification across Latin America.

**ANDE (state-owned entity, not publicly listed)** — The Administración Nacional de Electricidad reactivated equipment tenders under a leasing arrangement with an overall increase of 61 million dollars relative to earlier processes, at a time when industrial demand is straining the installed capacity of the national electrical grid.

**Itaipú Binacional (Paraguay-Brazil binational entity)** — The hydroelectric plant acknowledged that its transmission system to Brazil is operating at "zero values" due to works in progress, temporarily affecting the royalties and compensation Paraguay receives, and raising questions about regional energy supply during a critical maintenance window.